06 July 2023
When I received Cap Gains statement for the UTI ULIP matured, it was found that the indexed cost of acquisition for units purchased ( not BONUS) before 2000 was taken as ZERO.
This has resulted in the Indexed cost of such units LESS than the actual cost and the LTCG with indexation has been inflated due to that.
Is it correcd ? For UTI ULIP units purchased till Dec 1999, what shall be indexed cost ?
09 July 2024
The issue you're facing with the indexed cost of acquisition for UTI ULIP units purchased before 2000 is a critical one, as it directly affects the calculation of Long-Term Capital Gains (LTCG) with indexation. Here’s a clarification on how indexed cost is determined for units purchased before 2000:
### Indexed Cost of Acquisition:
1. **Units Purchased Before 2000:** - For units purchased in UTI ULIPs before January 1, 2000, the indexed cost of acquisition should not be considered as zero. This seems to be a misunderstanding or an error in the calculation provided to you. - The indexed cost of acquisition for units purchased before 2000 should be computed based on the cost inflation index (CII) for the relevant financial year in which the units were purchased.
2. **Calculation Method:** - The indexed cost of acquisition is calculated using the formula: \[ \text{Indexed Cost} = \text{Actual Cost} \times \frac{\text{CII of Sale Year}}{\text{CII of Purchase Year}} \] Here, CII stands for the Cost Inflation Index published by the Income Tax Department.
3. **Impact on LTCG:** - If the indexed cost of acquisition is incorrectly calculated as zero, it would indeed inflate the LTCG with indexation because the denominator in the indexation formula would be zero. - This would result in a higher taxable LTCG than what should be ideally calculated based on the actual indexed cost of acquisition.
### Action Steps:
- **Verify Calculation:** Review the Cap Gains statement and the methodology used for calculating the indexed cost of acquisition. Ensure that the CII values for the respective years are correctly applied. - **Consultation:** If there is an error in the calculation provided by UTI or any discrepancies in the indexed cost of acquisition, consider consulting with a tax advisor or financial expert who can help rectify the issue. - **Documentation:** Keep all relevant documents, including purchase receipts, statements, and calculations, to substantiate your case for correcting the indexed cost of acquisition.
### Conclusion:
It's crucial to ensure that the indexed cost of acquisition for UTI ULIP units purchased before 2000 is calculated accurately as per the applicable CII. Any discrepancies should be addressed promptly to avoid incorrect taxation of LTCG. If you believe there has been an error in the calculation provided to you, seek professional advice to rectify the situation and ensure compliance with tax regulations.
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